As an experienced day trader, I get asked for advice all the time about different ways of trading and different strategies. So I always try to deliver good, sound advice, in a fun and informative way. That means telling stories. It always comes back to stories.
One way to look at it is, stocks tell a story about a company. The way to make money on that story is to be able to tell if that story is about to go in a bad direction or a good direction. But everyone learns better by reading stories. So to learn about how to really institute a good, solid trading strategy like gapping up, it helps to follow a story.
Let me tell you about Johnny and the gappers.
Johnny was a poor kid from a failing town in Appalachia. There used to be a thriving mining industry and it employed the whole town. Heck, practically the whole county. But the mining company stripped that area pretty good and by the middle of the last decade, Johnny’s dad and uncles and all their friends were all out of work.
Johnny was just getting out of high school when the mining company ran out of town. He had decent grades, mostly in math, but he wasn’t interested in college. He got by working nights at the local 7-11 and playing XBox online with his buddies all day. Then he discovered Warrior Trading.
Johnny was tired of his dead-end life and dead-end job. He dove right into the Warrior curriculum the first week he found the site, with winnings from playing daily fantasy sports, another hobby to pass the time in West Virginia. With his math skills, Johnny blew through the training and the simulated trading month, passing everything with flying colors.
Then he latched on to trading gappers as a go-to strategy pretty much right away. It is one of the simpler strategies, but executed correctly, with discipline, day after day, it can be a steady money maker. What Johnny started to do was find the gappers that were above 4% and start trading on them in a very specific and efficient way.
Let’s take a minute to see what gap stocks actually are. Gap stocks are stocks that open higher than they closed the day before. Why do they do that? Sometimes, it is a catalyst, such as an earnings report or a new product launch that causes the spike.
So, why did Johnny look for gappers of 4% and above? Gap stocks that are under 4% are more likely to get “filled" quickly, which is to say that they fall back down to pre-gap levels.
The beauty of Johnny’s strategy play is that he became great at finding gappers, identifying the catalyst and making sure they were about to make a real run. Every day, between 9:30 and 10 am, he would place his trades, with the proper stop-loss in place and make a profit more often than not.
Which meant that Johnny had the rest of the day to learn and perfect other stratagies that would round out his ability as a trader. That is how Johnny became a better, more profitable trader and eventually make a bundle, shorting the mining company that had left his hometown in the dust.
That is the power of day trading and, especially, making gap stocks a real priority.
These days, Johnny still day trades, but spends a lot of time on Twitter as well. He talks about trading on Twitter all the time, so he is a great resource to add to your list.